The Right REIT for Residential Returns

07/17/2017 2:56 am EST

Focus: REITS

Ned Piplovic

Assistant Editor, Eagle Financial Publications

Ned Piplovic, editor of Dividend Investor, sees upside opportunity in two real estate investment trusts, each offfering a high yield based on its portfolios of residential properties.

AvalonBay Communities (AVB), based in Virginia, owns or holds ownership interest in 284 apartment communities containing approximately 82,500 apartment homes in 10 states and the District of Columbia.

These residential communities are in 18 high barrier-to-entry markets characterized by a low supply of zoned apartment land and lengthy entitlement processes. Founded in 1978, the REIT is based in Arlington, Virginia.

The current quarterly dividend of $1.42 is equivalent to a $5.68 annual payout and a 2.9% yield. Over the past six consecutive years, the REIT boosted its annual dividend every year by an average 8% per year.

Even over the past two decades, the REIT managed to maintain a 5.3% annual dividend growth rate with only three years without a dividend boost.

The share price dropped almost 10% between late-June and mid-November 2016. However, since November 2016, the share price rose 26% to reach its 52-week high by June 5, 2017.

Camden Property Trust (CPT) owns and manages 153 multifamily residential apartment communities with more than 53,000 apartment units across nine U.S. states.

Its properties principally consist of mid-rise buildings and two-and three-story buildings with various amenities, such as pools, a clubhouse, tennis courts and controlled-access gates. Founded in 1993, the REIT is headquartered in Houston, Texas.

The REIT currently pays a $0.75 quarterly dividend. This quarterly distribution is equivalent to a $3.00 annual payout and a 3.4% dividend yield.

In September 2016, the company paid a $4.25 special dividend, which raised the total annual dividend for last year to $7.20. However, if we disregard the special dividend, the company hiked its regular dividend for the past seven consecutive years.

Over the past 20 years, the REIT cut its annual dividend only twice, in 2009 and again in 2010. However, since 2010, the annual dividend rose at a 7.6% average annual rate.

The share price dropped 7.5% from June to November 2016. Since reversing the downtrend in mid-November 2016, the share price rose more than 20% and reached a new 52-week high of $90.91 on June 19, 2017.

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